USD/JPY Market Analysis and Trading Scenarios – October 23

USD/JPY Morning Session Review

During the first half of the day, the USD/JPY pair tested the 156.84 level. A valid short entry was confirmed when the MACD indicator began moving downward from the zero line, resulting in a downward movement of nearly 30 points.

Fundamental Drivers and US Data

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The afternoon session will be heavily influenced by the release of preliminary US PMI data for October. Markets expect manufacturing PMI at 55.5 (down from 55.9) and services PMI at 58.0 (down from 58.8), alongside a previous composite reading of 58.4. If actual figures meet expectations, they will likely reinforce Federal Reserve tightening expectations, lift Treasury yields, and support the US dollar.

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Japanese Economic Context and Central Bank Outlook

Japan's reliance on energy imports settled in US dollars leaves the yen vulnerable, particularly as high oil prices widen the trade deficit. Although September CPI rose to 2.1% and the core index increased to 2.1%, the manufacturing PMI disappointed at 53.3 against a 54.5 forecast. Meanwhile, the Bank of Japan's potential rate hike at its October 30 meeting holds an implied market probability of roughly 25%.

Intraday Buy Scenarios

Traders looking to buy USD/JPY can monitor Scenario 1, targeting an entry around 156.95 with a take-profit target at 157.41, provided the MACD is rising above the zero line. Alternatively, Scenario 2 involves entering long if the price tests 156.74 twice consecutively while the MACD is in oversold territory, anticipating a rebound toward 156.95 and 157.41.

Intraday Sell Scenarios

For short positions, Scenario 1 suggests selling if the price breaks below 156.74, aiming for a primary target of 156.18. Scenario 2 looks for short entries if the price tests 156.95 twice while the MACD remains in overbought territory, targeting a pullback toward 156.79 and 156.18.

Risk Management and Trading Discipline

Market participants should exercise caution around high-impact macroeconomic data releases to avoid excessive volatility. Implementing strict risk management protocols, including stop-loss orders and defined trading plans, remains essential for capital preservation during intraday operations.

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